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IRS announces new tax breaks — but relief isn’t coming until next year

Here’s how it will affect your 2023 tax return

SHARE IRS announces new tax breaks — but relief isn’t coming until next year
A portion of the 1040 U.S. Individual Income Tax Return form is shown July 24, 2018, in New York.

A portion of the 1040 U.S. Individual Income Tax Return form is shown July 24, 2018, in New York. Taxpayers will get fatter standard deductions for 2023, and all seven federal income tax bracket levels will be revised upward as the government allows people to shield more of their money from taxation because of persistently high inflation. For couples who file jointly for tax year 2023, the standard deduction increases to $27,700, up $1,800 from tax year 2022, the IRS announced.

Mark Lennihan, Associated Press

On Tuesday, the Internal Revenue Service announced changes to tax bracket cutoffs and standard deductions aiming to account for at least some of the negative tax implications amid ongoing, record U.S. inflation.

But taxpayers won’t be able to take advantage of the potential savings until they file their 2023 reports.

What are the new IRS tax adjustments?

Standard deductions that lower filers’ taxable income for 2023 are all moving up.

Those changes include the standard deduction for married couples filing jointly for tax year 2023 rising to $27,700, up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction will increase to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.

While personal income tax rates for 2023 will remain unchanged, and range from 10% to 37%, the IRS is making upward adjustments to tax bracket cutoff amounts. The move helps offset the tax impacts of wage increases, which may move earners into higher brackets, that don’t actually keep pace with the inflation-driven increased cost of living.

The individual tax brackets for ordinary income as well as those for capital gains will all be jumping in 2023 by 7%, per a report on the changes by Forbes. So, for example, the lowest 10% ordinary income tax bracket will cover the first $22,000 of taxable income for a married couple filing jointly, up from $20,550 in 2022. The 24% bracket for the couple will kick in at $190,750, up from $178,150, and the highest 37% rate will hit taxable income exceeding $693,750, up from $647,850 in 2022.

The IRS update includes dozens of other changes including adjustments to earned income tax credits, alternative minimum tax rates and estate tax exemptions.

Ongoing inflation is the driver behind the IRS changes

The IRS began indexing tax brackets in the mid-’80s following an earlier period of particularly rough U.S. inflation.

Similar circumstances are once again battering U.S. consumers with inflation that’s been running at or near 40-year highs for much of this year.

A report released last by the U.S. Department of Labor shows the consumer price index rose 0.4% in September and is up 8.2% from a year ago.

That’s more than expected, up slightly from the monthly 0.3% Dow Jones Estimate, according to the Bureau of Labor Statistics, and more than a 8.1% yearly increase economists surveyed by The Wall Street Journal had expected. The 8.2% is still down slightly from its peak of 9% in June, but it’s sticking stubbornly around the highest levels seen since the 1980s.

Mountain West states, including Utah, continued to see the highest regional inflation in the country in September, coming in at 9.6% up year over year.

The continued rise in the prices on most goods and services comes even as the Federal Reserve has worked to cool down the U.S. economy and quell inflation with a series of aggressive benchmark rate hikes.